New Help to Buy mortgage scheme could give second home buyers help

Chancellor George Osborne delivered on his promise that the government would give first-time buyers a leg-up onto the housing ladder with his Help to Buy scheme proposed in Budget 2013. However, Labour party have argued the government's ambitious Help to Buy scheme could be exploited as a second home buyers help by wealthy individuals and used to develop their property portfolio.

The new Help to Buy scheme

The new Help to Buy budget initiative, due to start from January 2014, promises homebuyers government lending for up to 20 per of the value of a home, which the homebuyer has put down 5% deposits. The government lending will be through a home equity loan and available for homes up to £600,000.

According to the government, the scheme is meant to help people who are looking to buy a house, but are unable to raise enough money to put down a deposit without assistance.

Critics of the scheme

While acknowledging the scheme could get more people on to the housing ladder, Labour said the small print of the scheme does not rule out wealthy homebuyers hijacking the scheme and using it as a second home buyers help to buy a second or third properties.

They also expressed concern that the scheme meant to help first time homebuyers could fuel another unsustainable property boom that could escalate the price of homes and make them less affordable for young people.

The government’s response to critics

Treasury, however, says the point of the Help to Buy scheme is to cushion first-time homebuyers from big demands and high interests required by banks to get funding to finance a property for the first time.

Speaking on BBC Radio 4, the Chancellor reiterated that the scheme was designed for first-time homebuyers and he did not want the scheme to help people buy second homes. However, the chancellor fell short of saying wealthy individuals would be excluded from exploiting the scheme.

"The mortgage market is an extremely complex thing. The intention of the scheme is absolutely clear, which is that it is for people who want to get their first home or have a home and want to move to a bigger home, because perhaps they have got a bigger family.

Where this leaves us in the housing market

While George Osborne refuses to rule out the possibility that the Help to Buy scheme could be used as a second home buyers help, the Council of Mortgage Lenders (CML), which represents banks and building societies in the UK, has concluded that the scheme must be attractive to borrowers, viable for lenders and not overly complex for it to work effectively.

I guess that means the scheme is not there yet, but discussions to iron out concerns are in gear. We just have to wait and see how things turn out, especially if we are among those looking to benefit from government lending to secure a second home.